Modeling is a big idea and one that I started noodling on many years ago. In the last couple of weeks I’ve looked at the cloud computing model, or what it ought to be. Today I am looking at a broader paradigm. One of the great things about new paradigms is that there is no model per se, in a way a new paradigm is an opportunity to create the model; it’s an incipient model perhaps.
The most interesting models or modeling I can think of are those that take place in four dimensions. You will recall without much prompting that we live in four dimensions, time plus the three that define space and from this we get Einstein’s space-time. People who study the big bang speak of matter, space and time as “condensing” out of the event. That choice of word has always fascinated me.
There might even be more dimensions that we don’t know about or comprehend. How can that be? I don’t know the only analogy I can make is that my dog lives in the same four (or more) dimensions as I do but he’s only apparently aware of the ever present now.
Four-dimensional modeling is not hard to comprehend, but like a dog, we routinely fall back a dimension to deal with reality, especially in business. Let’s use the analogy of riding a bike. The bicycle stands against a wall in four dimensions like everything else though it can be comprehended in three very easily. But riding the thing is definitely a four dimensional experience. You can’t ride a bike unless you make a conscious effort to go through space-time balanced on those two wheels.
Learning to ride a bike requires modeling — either training wheels or the expert hand of an adult or perhaps an older sibling who models for you the feeling of keeping your balance. No amount of discussion before hand is very instructive for a first time rider because words fail to communicate the feeling in your stomach as you take your first ride.
In business our models are typically three-dimensional. The two that make the most interesting contrast for me are the accounts receivable (AR) report and the sales forecast. The AR report tells you in a two dimensional grid about what was done in the one dimensional past. It gives you an accurate representation of what is owed and what will come in barring some future four-dimensional miscue.
The sales forecast is much different. We treat is like the AR report but with far different expectations. The forecast is purely four-dimensional but we insist on treating it like the AR report which, though not perfect, is physics compared to the sociology of the forecast.
My point, and perhaps it is not a big one, is that good forecasting requires a four-dimensional model and that can’t be done with a report. You might disagree and the evidence is on your side, mostly. For decades we’ve used a standard forecast report to predict future revenues but honestly, it’s been far less than satisfying. We get our forecasts wrong quite a bit. My data invariably shows that sales forecasts rarely have a ninety percent confidence level. It’s a narrow range — fifty percent is as good as a dartboard so there isn’t a lot of room to work in. We complain about forecast accuracy with the same frequency we complain about the weather, but as Mark Twain wryly observed about the weather, we never do anything about it.
That standard sales forecasting via reports and spreadsheets has worked so well for so long is not a tribute to the method but an artifact of times when we were able to sell standardized products into huge markets. Demand was usually sufficient to backfill one opportunity with another when necessary.
But today’s markets are a bit different. We are doing far more cross- and up-selling than ever. Product lines are expanding but categories are relatively stagnant. Getting the forecast right has never been more important because margins are smaller and there are fewer deals with which to backfill.
The solution for the sociology of the forecast might be the same as the solution for the weather — a model moderated by computer processing power. Rather than focusing on a single report that amounts to a three-D snapshot in time, we need two things. First, a model that captures past information and integrates it into the present but also the model has to offer enough predictive value from prior experience to enable us to self-correct and avoid a crash.
A child (or a trained circus animal for that matter) on a bike can do this and it should not be terribly difficult for us big-brained adult humans to do so with a forecast. I have been impressed with the advances made by analytics companies in this area in the last few years though they often discuss everything in terms of analytics. I would rather they approach this in terms of a model or riding a bike though. Perhaps that would make the idea of using analytics less daunting.
Phil Fernandez, CEO of Marketo, is our latest thought leader interview subject on the Beagle website (http://beagleresearch.com). Phil’s career started in the analytics boom of the 1980s and he’s been successfully bringing analytics closer to the customer with every iteration of a career that includes companies like e.piphany and several others. Lately analytics has taken on even greater importance as he and other Silicon Valley leaders have begun talking about the importance of embedding analytics in line of business applications. The shorthand message for all this is, typically, embedded in the movement’s tag line — Revenue Performance Management or RPM. Who doesn’t like revenue? RPM strikes a nerve for any CEO worth his or her BlackBerry and that’s is why this interview is a must-read.
The cost of business travel is going up and up and up and, oh yeah, Happy New Year.
Forget all the CRM prognostications you’ve been reading over the holidays, the only one of significance to your business and to CRM is what you’ll be paying to get in front of customers. Last week a former Shell Oil President, John Hofmeister, gave an interview on CNN Money in which he forecasted $5 per gallon gasoline by 2012.
With the national average for unleaded regular at $3.07 last week—a rise of 42 cents over the course of 2010, prices are as high as they’ve been in a couple of years. This would be good news for an ailing economy because increased energy use goes hand in hand with increasing economic activity. But at the same time, runaway fuel prices have the potential to shred your SG&A line and tank the economy once again.
This kind of cyclical boom and bust is in the offing unless we get a handle on the transportation costs that are such a big part of front office business processes. You don’t need to be told this but gas prices, diesel and jet fuel prices move in parallel, which just about defines the travel part of a company’s front office business processes.
The reasons for the rise are well known and follow a classical economic supply and demand curve. The difference now is that in previous booms you could simply call West Texas, Oklahoma, California, Alaska, Mexico, Norway, Scotland and oh yes, the Middle East and ask them to open the spigots a bit more and all would be well. Today you can’t do that because supply is at peak and the developing world—China and India but also places like Brazil—all want more energy. When supply is stagnant and demand rises, so do prices so here we are.
If you’re not a Peak Oil fan, think in these terms—there hasn’t been a new refinery built in the US since the mid-1970’s and refinery capacity is maxed out creating another supply bottleneck. Also, the cost of drilling in deep water can be as high as a hundred million dollars per well (whether not you discover oil). That is not the same as the cost of drilling in the bad lands and those costs need to be passed on to the consumer. You can pick your storyline but it all comes down to the same conclusion. Travel is becoming more expensive so this is the year to anticipate changing your front office business processes and begin to do something about it.
What’s to do? Well, much of it comes back to the technologies that mediate front office business processes. The front office technologies that have been developed over the last decade—and especially the last five years—will come front and center as we craft new and better ways to interact with customers.
Chief among these technologies will be analytics. You thought I’d say social media or perhaps online conferences, videos or something else? I will but they aren’t first on the list. Analytics is first because analytics is the killer application for everything else. Analytics gives you the ability to make sense of all the data that social media churns up and informs your decisions about which video content to develop and deploy. It also helps you make rational decisions about which customers to get in front of and when. So if you haven’t begun dabbling in analytics I’d say yesterday was a good time to start, today is pretty good too. Tomorrow is iffy.
Next on the list is everything else. Once you know much more about your customers and, really, demand, you can make intelligent decisions about crafting your messages and putting them into videos and developing online conferences. None of this is hard to do but it will make your life different. It will take you off the road and put you on the phone and on the web.
Anneke Seley, co-author with Brent Holloway of Sales 2.0, tells me that some of the most successful companies using new technology are finding ways for marketing and sales to work more closely, breaking down barriers between inside and field sales and developing web and phone strategies where direct field sales was once the order of the day. I’ll post an interview with Seley shortly.
Thinking differently about front office processes is not hard but implementing new ideas might be. While we all want to save a buck, investing in new technologies that help do this is a tough call at the tail end of a recession. Part of Seley’s advice to me is to start with a pilot project to see if a new approach will work in your company with your staff and products. If success is elusive, think hard about people, process and technology. Five-dollar gasoline and jet fuel spell a turning point and you simply have to get around that corner.
Recessions are always a good time to rebuild your competitive infrastructure and the slow growth/recession of the last couple of years has been no exception. On the stock market, the technology sector seems to be doing quite well. After bottoming in the middle of the summer the software companies especially seem to be rebounding. Microsoft, Oracle, Salesforce, RightNow and NetSuite are all gainers.
But the drivers for software acquisition remain what they have always been—improving processes, saving money or making money. Companies whose products can do one or more of these will do well. And customers will gobble up their wares as they seek out more competitive stances in their chosen markets. The theme to watch for is replacement as many foundational applications that were implemented for Y2K reach the end of their shelf lives. Here are some issues to consider.
- Ten year-old ERP and CRM systems will be more than ripe for replacement. New business processes and better economics will do the heavy lifting to prove the case for new applications. Many of the conventional vendors like Oracle and SAP will be there as will newer entrants who’ve proven themselves over the last decade. Watch for names like NetSuite, RightNow, Salesforce and others to command attention.
- Cloud computing. After several years of debate about what cloud computing is or is not, customers are in a great position with lots of choices for solutions. It doesn’t matter whether you prefer single tenant or multi-tenant solutions, the economics of running software in the cloud are so compelling that you can find a vendor that speaks your cloud dialect. Virtually every front and back office vendor has a cloud offering or two.
- Analytics is another solution set that has been in the background for many years. But new demands in the form of trying to make sense of the mountain of data brought in daily by our social applications makes analytics a necessary add-on. Analytics solutions are abundant and even SAS Institute, a pioneer in enterprise analytics, has jumped into the market with cloud based solutions for social data. It is somewhat surprising that Gartner expects only 35% penetration in customer service centers by 2013. That looks like a great opportunity for differentiation to me.
- It will also be a year for collaboration and I think collaboration may be the first true business social application type. Judging from the rapid adoption the Salesforce’s Chatter is receiving I anticipate the broader market will see collaboration as a business process no one can afford to ignore.
- Integration will be important in the year ahead too. There are no so many applications and application types on the market that we can safely give up any pretense that a single vendor could deliver all of a company’s CRM needs. APIs and cloud computing make integration more important and feasible. More vendors will discover that the winning strategy is to do whatever is possible to pre-integrate their wares with strategically important foundation CRM vendors. It wouldn’t surprise me to see some vendors begin to organize around specific business processes or types such as channel selling.
- This also implies that many companies will be looking to extend their solution sets with strategic additions. Any company can optimize its CRM deployment and probably gain competitive benefit by looking at its business processes and comparing their level of automation with the product sets now on the market. Need a way to keep your sales people in the game? Try a compensation management system. It will give them a way to quickly understand their progress in the only way they keep score. At the same time it will reduce the back office overhead caused by end of quarter commission calculations.
- If you have an interest in bringing out a new product but worry that a limited marketing budget could limit your success, you might first consider a variety of customer analytics that can help you determine which customers have a need, what that need is and how to approach them.
- Or perhaps you are looking to improve service and save money but worry about displacing the good but expensive handholding your service group provides with faceless automation. Try a social service solution that engages your user community to help answer basic customer inquiries through Twitter and Facebook. Not only will you be able to maintain a person-to-person approach but response times might decline and there’s no telling what positive fallout might happen when customers help each other. If you’re monitoring the chatter you might discover that a core group of customers has great understanding of your product and does a super job of helping out. The help can also turn into articles for your knowledge base.
- The last area for social penetration might be using solutions to analyze your negatives—to identify instances where customers express their displeasure with you on the Web. It’s much better to deal with an irate customer than to let their anger fester, but first you have to find them. Social media and analytics can help and it’s a worthy investment. Our research shows that even the best companies have their detractors but often a vendor knows little or nothing about a problem.
To summarize, the year ahead in CRM will be important for replacing old systems and for integrating new niche applications that sharpen your game. The costs of these additions will be relatively low due to cloud computing and the nature of some smaller niche applications. The recession ended in July of 2009 and while it might not feel like a recovery right now, there is ample evidence of improvement. You can use next year strategically to improve your stance as a recovery picks up steam. There are good products on the market and vendors are still hungry. If you miss this opportunity, I think you’ll be saddled with your old and relatively expensive systems for longer than you might like.